On January 1, 2017, Mcllroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $392,400. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $231,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $261,600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $81,700 and an unrecorded customer list (15-year remaining life) assessed at a $57,000 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, Mcllroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows: Year 2017 2018 Cost to Mcllroy $130,800 113,400 Transfer Price to Stinson $163,500 151,200 Ending Balance (at transfer price) $54,500 37,800 The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow: Sales Cost of goods sold Operating expenses Equity in earnings in Stinson Net income Retained earnings, 1/1/18 Net income Dividends declared Retained earnings, 12/31/18 Cash and receivables Inventory Investment in Stinson Buildings (net) Equipment (net) Patents (net) Total assets Liabilities Common stock Retained earnings, 12/31/18 Total liabilities and equities Mcllroy, Inc. $ (741,000) 487,000 199,020 (35,308) $ (90,288) $ (792,000) (90,288) 49,100 $ (833,188) $ 283,600 266,400 429,006 347,000 247,700 0 $ 1,573,706 $ (440,518) (300,000) (833,188) $ (1,573,706) Stinson, Inc. $ (377,000) 230,200 78,400 0 $ (68,400) $ (283,800) (68.400) 19,600 $ (332,600) $ 151,400 132,000 $ $ 206,500 90,100 24,800 604,800 (172,200) (100,000) (332,600) (604,800) $ a. Show how Mcllroy determined the $429,006 Investment in Stinson account balance. Assume that Mcllroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income. b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018. Required A Required B Show how McIlroy determined the $429,006 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income. Consideration transferred Increase in Stinson's retained earnings 1/1/17 to 1/1/18 Excess fair value amortization 2017 ending inventory profit deferral Mcllroy's equity in earnings of Stinson for 2018 Stinson 2015 dividends declared to Mcllroy Investment account balance 12/31/18 Accounts NCI MCILROY, INC., AND STINSON, INC. Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Mcllroy Stinson Debit Credit (741,000) $ (377,000) 487,000 230,200 199,020 78,400 (35,308) (90,288) (68,400) Consolidated Totals Sales | $ Cost of goods sold Operating expenses Equity in earnings of Stinson Separate company net income Consolidated net income To noncontrolling interest To Mcllroy, Inc. Retained earnings, 1/1 Net income Dividends declared Retained earnings, 12/31 Cash and receivables Inventory Investment in Stinson Buildings (net) Equipment (net) Patents (net) (792,000) (90,288) 49,100 (833,188) $ 283,600 $ 266,400 429,006 347,000 247,700 0 (283,800) (68,400) 19,600 (332,600) 151,400 132,000 $ 206,500 90,100 24,800 $ Customer list Goodwill Total assets Liabilities Common stock Noncontrolling interest 1/1 Noncontrolling interest 12/31 Retained earnings, 12/31 Total liabilities and equities 1,573,706 (440,518) (300,000) 604,800 (172,200) (100,000) (833,188) (1,573,706) (332,600) (604,800) $ $ $
